Investors Use Retirement Accounts Buy Homes

Investors Use Retirement Accounts Buy Homes

Daily Real Estate News |
Monday, May 20, 2013

Amateur investors are increasingly tapping into their retirement accounts to buy homes and take advantage of the hotter housing market, CNNMoney reports.

"We're seeing many people cash out 401(k)s or IRAs because they want to take advantage of the market," Sean Galaris with LM Funding, a financial services firm based in New York and Miami, told CNNMoney. "This new scenario involves people losing significant personal funds since they are financing real estate through retirement accounts, savings, and life insurance."

Tax attorney Adam Bergman with IRA Financial Group in New York says that he gets many calls each day from clients who are looking to invest retirement funds in the housing market.

"Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties," Bergman says. "After 2008, they didn't trust Wall Street. They wanted hard assets."

But the move can be risky, financing advisers say. For example, if the investor quits or loses his job, any unpaid part of the loan will be subject to income tax as well as a possible 10 percent early withdraw penalty. Also, housing prices are on the rise in many areas and investors need to make sure they don’t overpay for a property and can still get suitable returns from their investment.